PSU as well as private banks rallied up to 5 percent after the State Bank of India (SBI) introduced a 2-tier saving bank interest rate structure with effect from Monday, July 31.
Nifty Bank hit a fresh record high of 25,042.85, up nearly 1 percent while PSU Bank index surged 4 percent in afternoon trade Monday.
Equity share price of country’s largest lender SBI gained up to 5 percent followed by Bank of Baroda (up 3.6 percent), ICICI Bank (2.5 percent) and PNB (2.1 percent).
SBI in its filing said the balance above Rs 1 crore will continue to earn interest at 4 percent per annum, while interest at 3.5 percent per annum will be offered on balances of Rs 1 crore and below.
The decline in the rate of inflation and high real interest rates are primary considerations warranting a revision in the rate of interest on saving bank deposits, it said.
“SBI had to cut saving interest rates as real interest rate was very high. We had two options; either to raise MCLR or cut savings bank interest rates,” Rajnish Kumar, MD of SBI said while addressing press conference.
Savings bank interest rates have been static since 2011. Savings deposit rate was 3.5 percent from March 2003 to June 2011 and rate was 4 percent from June 2011 till date.
He said the bank would see at the end of August if savings bank interest rate cut impacts lending rates. Rate cut won’t result in outflows from savings deposits, he added.
About 90 percent of total 9 lakh savings accounts have deposits of below Rs 1 crore.
SBI’s asset-liability committee meets during last week of every month to take a call on rates.
Kumar said interest rate cut has nothing to do with RBI policy on August 2.
SBI had cut the MCLR (marginal cost of funds based lending rate) by 90 bps effective from January 1, 2017 on the strength of large flows in savings and current accounts during the demonetisation period in the month of November and December 2016. There have been significant outflows of CASA deposits since then.
“The revision in saving bank would enable the bank to maintain the MCLR at the existing rates, benefiting a lot of retail borrowers in SME, agricultural and affordable housing segments,” SBI said.
Sharekhan feels other banks are also likely to follow the suit.
SBI unlike its private sector peers offers plain vanilla savings accounts to public with minimum operating charges and hence heavily relies on interest income from such available float.
Jimeet Modi, CEO of SAMCO Securities feels the rate cut by the SBI on savings bank account is a strategic move by the bank aimed at increasing profits.
The bank has an above average CASA ratio of 45.58 percent for the year ended March 2017 which shows that it has large savings pool.
This move will result in increasing its net interest margins which are currently below standards at 2.84 percent for March quarter. This is purely a commercial move which will boost profitability and ratios for the bank, Modi feels.[“Source-moneycontrol”]